Financial sector’s capital position as at 30 September 2020: Finnish financial sector's capital position strengthened slightly as economy recovered – impacts of the coronavirus pandemic will become evident with a lag, however


The Finnish financial sector’s capital position strengthened in the third quarter of 2020, as the economy recovered from the strong decline witnessed in the previous quarter. Finnish banks’ ability to absorb losses and provide credit remained strong. The Finnish banking sector’s capital ratios remained stronger than the European average. Capital ratios strengthened also in the pension, life and non-life insurance sectors.

The impacts of the corona pandemic on the financial sector will become evident with a lag, however.

“As the corona pandemic drags on, financial sector regulations have been eased further in Europe. The investment market and the real economy are providing partly mixed signals on the situation and outlook of the economy: despite difficulties in the real economy, the market is optimistic about the future. In case of weaker-than-expected development, financial sector entities must have strong capital positions and adequate risk buffers. Measures in response to coronavirus are now the best policies, not only in terms of health but also for the economy and the financial sector,” notes Anneli Tuominen, Director General of the Financial Supervisory Authority.

Banks’ capital ratios remained strong in the third quarter

The Finnish banking sector’s capital position remained strong in July-September 2020. At the end of September, the Common Equity Tier 1 (CET1) capital ratio was 17.5% (30 June 2020: 16.9%) and the total capital ratio was 20.6% (30 June 2020: 20.8%). The strengthening of the CET1 ratio in the third quarter of 2020 was due to, in particular, the larger volume of CET1 capital, lower risk weights and a decline in the level of market risks. The Finnish banking sector’s surplus of own funds relative to risk-weighted assets remained virtually unchanged (6.6%).

The Finnish banking sector’s capital ratios are stronger than the European average. At the end of June 2020, the average CET1 capital ratio of EU banks was 15.4% and the total capital ratio was 18.7%.

Pension sector solvency improved in the third quarter

The pension sector’s solvency ratio improved slightly in the third quarter, to 125.3% (30 June 2020: 123.3%). The pension sector’s solvency capital increased to EUR 26.9 billion (30 June 2020: EUR 24.6 billion), in response to the 3% increase in the value of investments in the third quarter. The solvency position, i.e. the ratio of pension institutions’ solvency capital and solvency limit improved only slightly and was 1.67 (30 June 2020: 1.65). The solvency limit rose as a result of higher equity risk.

In the pension sector, the average return on investment at the end of September was -0.9%. Of the main investment classes, the return on equities, fixed-income investments and other investments was at the end of September negative, year-on-year, and the return on real estate investments was 1.2%.

Life insurance companies’ solvency improved slightly

The life-insurance sector’s solvency ratio remained good in the third quarter of 2020 and was 198.1% (30 June 2020: 194.9%). The strengthening of the solvency ratio was mainly due to the fact that unit-linked insurance assets grew more than the technical provisions for unit-linked policies. The life insurance sector has withstood well the market disruption caused by the pandemic, despite the negative impact on premiums written.

Life insurance companies’ return on investment was 1.3% at the end of September. The return on investment increased both own funds and the solvency capital requirement. Equity investments yielded a significantly higher return than in the second quarter of 2020.

Non-life insurance sector's solvency was strengthened by improvements in profitability

At the end of September, the non-life insurance sector’s solvency was good. Own funds started to grow in the second quarter; the trend continued and the solvency ratio strengthened to 229.5% (30.6.2020: 223.1%). Own funds were bolstered by improvements in insurance business profitability and the fact that return on investment turned to positive territory (1-9/2020: 1%). The return on investment was accrued from fixed-income investments. The improvement in insurance business profitability reflected claims development favourable for non-life insurance companies.




Further information Samu Kurri, Head of Department, Digitalisation and Analysis, tel. +358 9 183 5247. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5250, weekdays 9.00–16.00.

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Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.

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